Last month, we launched a new feature on WardsDealer.com, the Ward's Dealer Dialogue blog. Below, you can find some of the entries we've made through the month of December.
It's our first attempt at the world of blogging, so there might be some trial and error.
But hang with us, because we're going to make Dealer Dialogue the place you go to find breaking news, relevant insight and ideas to help you manage your businesses.
You'll also be able to provide your own insight and commentary on the hot stories of the day, in addition to sharing your ideas on how to sell and service cars.
We'll be adding new and exciting stuff for you the next several months, so be sure to add us to your RSS reader or visit us often at http://blog.wardsauto.com/dealer_dialogue.
We look forward to hearing from you.
Some Good News for GMAC — Just a Little, Though
Finally, a little bit of good news for GM dealers. According to a SEC filing this afternoon, GM is allowing GMAC to defer, until December 30, payment up to $1.5 billion on vehicles shipped to dealers for which it provides floor plan financing.
Under normal conditions, GMAC pays GM the invoice price of the vehicle on the first business day following shipment. The move should enable dealers to order more vehicles and help GMAC finance a few more sales before the end of year.
Last month, GMAC financed only 1% of all of GM sales. A year ago, it was almost 70%.
GMAC, hurt by the mortgage collapse, will finance only those customers with credit scores of 700 or higher. And it's been tightening the screws on dealers' floor plan financing. Many dealers have been forced out of business because of the stricter policies.
December 26 is a critical date for the finance firm. The company wants to submit an application to secure bank status, allowing it to be eligible for TARP funds. Before it can submit the application, GMAC has to convince bondholders to agree to a debt swap of $38 billion for lesser debt.
The original deadline was Friday, December 12, but GMAC extended it two weeks because it fell nearly $17 billion short of its goal.
Bondholders agreed today to enhanced terms for a debt exchange, but GMAC still is far short of what it needs.
GMAC's precarious position is dicey for GM dealers. Several analysts believe GMAC will have to pull its floor plan financing from all of its dealers — as many as 40% of GM dealers finance with GMAC — if the company is unable to secure bank status.
Conceivably, 40% of GM dealers could be out of business sometime in January if GMAC does not survive.
Senate Says No — Good News for Auto Makers?
The U.S. Senate effectively voted tonight against providing a bridge loan of $14 billion to GM and Chrysler.
It's backwards, but the Senate's actions might work in the auto makers' favor.
The only play available to the auto makers is for the White House to authorize money from the TARP fund to be given to them.
A deal appeared close earlier this evening when Sen. Bob Corker (R-TN) submitted an alternative proposal, for which he later received high praise from Republican and Democratic Senate leaders.
The bill died when the UAW refused to agree to a demand from Senate Republicans forcing it to name a date by which it would agree to take significant pay cuts, placing it on a similar wage level to import auto makers.
Stay tuned. This story is far from over.
A Second Great Depression?
Despite an agreement between the White House and Congressional leaders on legislation that will provide a $15 billion bridge loan to GM and Chrysler, the battle is far from over. And time is running out.
Media reports and our sources in Washington D.C. are indicating Republicans are becoming more firm in their opposition to a loan package for the two domestic auto makers.
For whatever reason, the auto makers and their dealers appear to be losing the battle on Capitol Hill at the moment. The problem seems to be Senate Republicans, primarily in the South. Whether their resistance stems from a true philosphical position (which was missing when they doled out — and continue to do so — money to financial institutions), or an attempt to break the UAW, or strengthen their manufacturing base in the states they represent, Republicans are willing to force the country into what many analysts say will be an economic depression.
Louisiana Senator David Vitter (R) argued today in the Senate that giving money to the auto makers before they provide detailed restructuring plans is “backwards,” and “putting the car before the horse.”
He's got it wrong. A better question is, What doctor would require patients near death provide detailed plans on how they would better take care of themselves before offering treatment? Yet, that is what's happening here.
What's frustrating to dealers is that Republicans they thought were friends are now ignoring their pleas. For an industry that generally tends Republican (since 1990, the automotive industry has given $100 million to Republicans and a mere $33.7 million to Democrats according to OpenSecrets.org) the love is not being returned.
If you had told dealers two months ago that Rep. Barney Frank (D-MA) and Speaker of the House Nancy Pelosi (D-CA) would be their best friends they would have laughed. But that is the case today.
One could say the only question to ask Republicans is, do they want to go down in history being blamed for two Great Depressions in less than 100 years? Because that is what's going to happen if they deny the auto industry a simple $15 billion in the next few days.
Chrysler Could Lose 500 Dealers Due to Floor Plan Issues
Chrysler has lost 240 dealers this year to bankruptcy because Chrysler Financial has not been able to access TARP funds to use for providing dealers with floor plan financing, according to Chrysler CEO and Chairman Bob Nardelli's testimony before the House Financial Services Committee this morning. Another 250 dealers are on credit hold and are in danger of declaring bankruptcy.
The numbers of dealers in trouble have accelerated in the last couple of months. In late September, Chrysler vice president Steven Landry told me he had a folder on his desk he refers to as his “SOS” folder. It included files of 75 dealerships close to going out of business.
Lampert, Gates and AutoNation
One of the more interesting parlor games among the power elite in automotive retail is trying to guess what billionaire investor Edward S. Lampert has up his sleeve for megadealer AutoNation.
In November, Lampert's two private equity groups, ESL Partners LP and ESL Investors LLC, bought a combined $4.6 million worth of AutoNation stock. He now owns more than 78.6 million shares — good for 44.5% of the company. Lampert already was the company's largest stock holder.
He has increased his stake from 24% in March 2007, when he resigned from AutoNation's board of directors.
Some industry analysts speculate that Lampert intends to take AutoNation private. However, there would be many obstacles to doing so, including manufacturer resistance.
A more likely scenario has Lampert increasing his stake in AutoNation to 49% with the hope he will make a killing once the industry bounces back. Although, there could be a big play sometime in 2009, such as a major acquisition of a large dealer group.
Meanwhile, Microsoft founder Bill Gates also has been buying up AutoNation stock. So far in 2008, Gates' two foundations, Cascade Investments and the Bill & Melinda Gates Foundation, have purchased a combined 20.5 million shares giving Gates an 11.7% share of the dealer group.
While some automotive retail technology vendors think Gates' investment portends a possible move to insert Microsoft as the group's dealer-management system provider replacing ADP, it likely is a mere profit play that shows the level of confidence in the automotive retail sector.
AutoNation is making the right moves despite declaring a net loss for the third quarter of $1.4 billion, mostly attributed to declining value of its domestic dealerships. The company is paying down its long-term debt — down to $1.4 billion from $1.8 billion at the end of 2007. Its cash position also nearly doubled to $60.8 million in the third quarter.
The dealer group also cut its inventories by almost $1.6 billion this year.
Whatever Lampert's and Gates' plans are, AutoNation likely will become a very interesting company to watch in 2009.
